While much of the EMU enjoyed a.........>

EGB SUMMARY: While much of the EMU enjoyed a holiday Monday, stress over Italy

was unabated. BTPs took another hammering as markets awaited further news on

5-Star/Lega government formation and the name of the next Prime Minister.

- Italy BTPs took another leg lower with the 10-yr yield at a 14-month high of

2.3605%, up 13bps at one point. Saw a BTP future block in size around 3,246 IKM8

@ 132.54 at 1449:52BST which may help explain a sell-off from 132.68 to 132.52

shortly after 1430BST. Negative comments from Fitch Ratings on the Italian

sovereign outlook this afternoon did not help.

- Around 3bps of flattening in BTP 2s10s as 2Y sold off to highest yields since

mid-2015 on speculation about a possible parallel Italian currency being

introduced. 30Y up 'only' 9bps by comparison.

- Bunds rallying in turn, with Jun18 futures looking to close the day up 55

ticks around the high of 159.22. With BTP spreads vs Bunds up by around 17bps to

181.6bps, the rest of the periphery got hit. Spain out 10bps, Portugal 15bps.

- A little bit of flattening in Bunds curve (2s10s down 1bps to 114.8bps) and

the Euribor futures strip, with Whites up half a tick and Blues rising 3-3.5.